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Accounting & Finance

What is cloud accounting, and how can it help your business?

Posted by Shivali Anand

September 2, 2022

What is cloud accounting, and how can it help your business?

Technology is changing the way accountants do their jobs, and cloud accounting is a primary factor behind this shift. Through cloud accounting, businesses access programs from a remote provider over the internet rather than by handling documents on-site.

Cloud accounting offers the same functionality as traditional accounting. The only difference is that it runs on remote servers online, meaning you do not have to download large software applications. Tasks such as price quotes, invoicing, payment processing and cash flow monitoring can be accomplished easily with cloud accounting.

How the cloud has transformed accounting

In the past, accountants used software installed on their work computer to perform their job. Cloud accounting refers to the practice of performing accounting via software hosted on remote servers. Data is processed in the cloud and returned to the user.

Cloud accounting was introduced in 2006 but has become increasingly prevalent in recent years due to the pandemic and the widespread adaptation of remote work. According to an April 2022 report, the global market for cloud accounting software was valued at $2.63 billion in 2018 and is expected to reach $4.3 billion by the end of 2024. This represents a compound annual growth rate of 8.6%.

Typically provided in a software as a service format, cloud accounting is used by accounting professionals to manage accounts payable, receivable and the general ledger, among other things. Like other cloud-based systems, cloud accounting software operates on the cloud provider's platform. That means employees or outsourced accountants do not have to be physically present at a business location to use the tools needed to carry out accounting tasks.

Recap: Traditional versus cloud accounting

Traditional accounting software —

The norm before the advent of cloud accounting, applications were installed on the hard drive of a workplace computer and used from that location. This had several constraints, including limited access to data, the need for continual software upgrades and the cost of storing financial information.

Cloud accounting software —

Shifts the entire accounting process to the cloud. Data is securely kept on a cloud server, where it can be accessed from any device connected to the internet. Most cloud systems also feature an open application programming interface, which implies that third-party software may connect to your system to confer additional value.

Five key areas where traditional and cloud accounting differ

Among the chief pros of cloud accounting is that it is accessible from anywhere with virtually any device. It is also preferential to traditional accounting in terms of:

1. Price:

Traditional accounting entails purchasing software, installing it on all devices that will use it, and buying hard drives to store the software and your financial data. Cloud-based accounting requires only a device, internet access and frequently, a monthly subscription fee to the SaaS provider to make use of its cloud-based accounting software.

Most cloud accounting software is subscription-based where you select a tier and pay a monthly fee. Costs may vary from $5 to $75 per month, depending on the number of users and features. Some software even provides one-time or lifetime subscriptions from $150 to $500 based on the level of service chosen.

2. Speed:

Since it is installed on workstations directly linked to servers, traditional accounting software tends to be faster than cloud-based accounting. This allows for more efficient data transmission versus with cloud-based accounting, where you must transfer the data online. However, a faster internet connection boosts the performance of the cloud-based system to the point where the difference is negligible.

3. Access to real-time data:

Real-time access to data, which is impossible with traditional software, is one of the top benefits of cloud-based accounting systems.

4. Scalability:

As a business grows, so too does its volume of transactional and financial data. Traditional accounting software requires larger and faster servers to incorporate all the data, resulting in additional costs. Cloud-based software often incorporates extra data for free.

5. Safety:

With traditional accounting software, there is an ongoing threat of data loss due to power fluctuations, hardware faults and even natural disasters. Cloud-based accounting, since data is stored remotely and routinely backed up, is less susceptible to physical harm.

Is cloud-based accounting secure?

Data saved on a computer is vulnerable to compromise through malware, viruses and ransomware. Cloud-based software reduces these risks with a range of security measures to protect your data, including backups and encryption.

While no system can be guaranteed to be absolutely secure, reputable cloud accounting providers adhere to industry best practices when securing data. Further, cloud accounting software is frequently developed by major corporations, for whom data security is a top priority.

Security advantages of cloud accounting:

1. Data is automatically backed up 24/7:

Cloud accounting saves all your financial data automatically.

2. Backlog history:

Cloud accounting delivers a digital backlog of everyone who has signed into your program, including when and what modifications they made.

3. Data security:

Shifting your data to the cloud is more secure than protecting your data with a physical barrier, which can be stolen or tampered with.

4. Advanced encryption:

Most cloud accounting providers encrypt user data with the same sophistication as the world's most prestigious banks and financial organizations, ensuring better security.

When is cloud accounting a good choice?

If your business requires quick access to accurate financial data and KPIs, cloud accounting is an appropriate solution because of its superior real-time capabilities. Most platforms have an open API, so many options exist for building an app stack.

Among the spheres where businesses often rely on cloud accounting are:

• To reduce manual labor through automated processes.
• To perform data analysis on the fly.
• To access financial data on the cloud from anywhere.
• To simplify tax preparation.

How cloud accounting works in a business setting

Accountants, controllers, CFOs and company employees can collaborate through cloud accounting by accessing it using a web browser on any device. Service providers also offer mobile apps to enhance the user experience on phones and tablets.

Generally, the software connects with the firm's bank accounts, allowing for all transactions to be automatically posted to the appropriate digital ledger. Users have a home dashboard that displays essential financial information, including cash, invoices due in the next five days and past-due client payments. As soon as the software gets the latest information, numbers are updated immediately.

Most cloud accounting software lets you integrate third-party apps and software. For example, if a business owner uses a point-of-sale system to track sales, the POS system can be linked with the accounting system to track specific transactions, sales tax liabilities, sales by subcategory and more. The time tracking program might be integrated with the accounting software to include manual labor in customer invoices for a company that provides services.

Benefits of cloud accounting

Cloud accounting software's advantages explain why it has quickly become the instrument of choice for many finance professionals. Below are the top eight benefits:

1. Automation:

Transactions process automatically when bank accounts are linked to the accounting system, avoiding the need for time-consuming data input or manual processing. Accounting software may also pay vendors and automatically generate client bills on dates the user specifies.

2. Ease of access:

Any user with an internet connection, web browser and login credentials can use a cloud accounting solution.

3. Reduced operating costs:

Cloud-based companies often spend less capital than those that maintain their own technology packs in-house. With cloud accounting, you don't have to buy expensive gear or employ a huge IT team to run the system.

4. Data protection:

It is significantly more difficult for most firms to secure their on-premises systems than for leading cloud software providers. Reputable cloud accounting providers follow industry best practices to secure data using Security Sockets Layer protection on in-transit data and public/private key combinations to decode data. Further, cloud software vendors continually and automatically back up data, while standalone accounting software requires manual backups.

5. Scalability:

Cloud software gives businesses access to almost any computing resources they may require. As the company and its requirements expand, it may always add more server space.

6. Enhanced collaboration:

Collaboration is made more accessible with cloud accounting software, since data is available to all authorized users.

7. Enhanced efficiency:

Companies can ramp up very quickly with a cloud accounting system sooner, as they don't have to buy and set up servers or train an IT team to handle the procedure.

8. Connected online transaction:

Payment applications can be linked to cloud accounting system's invoicing, simplifying the payment process.

Author

Shivali Anand

Shivali Anand is a content developer at Escalon Business Services. Her expertise lies in creating consistent and relevant B2B marketing, SEO and social media content. She is armed with a PG Diploma in English Journalism from the IIMC Dhenkanal, Odisha. After starting as a travel writer, she embarked upon a career as a copyeditor, news content specialist, and researcher across organizations including Ministry of MSME, Vaco Binary Semantics LLP, Doordarshan News, and New Delhi Times.

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Accounting & Finance

What is cloud accounting, and how can it help your business?

How the cloud has transformed accounting

Recap: Traditional versus cloud accounting

Traditional accounting software —

Cloud accounting software —

Five key areas where traditional and cloud accounting differ

1. Price:

2. Speed:

3. Access to real-time data:

4. Scalability:

5. Safety:

Is cloud-based accounting secure?

1. Data is automatically backed up 24/7:

2. Backlog history:

3. Data security:

4. Advanced encryption:

When is cloud accounting a good choice?

How cloud accounting works in a business setting

Benefits of cloud accounting

1. Automation:

2. Ease of access:

3. Reduced operating costs:

4. Data protection:

5. Scalability:

6. Enhanced collaboration:

7. Enhanced efficiency:

8. Connected online transaction:

Author

Shivali Anand

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